Market Brief
The Central Bank actions continue dominating the week’s economic headlines. Following the PBoC rate cut, the RBI lowered the benchmark repo rate by 25 basis points to 7.50% via surprise action in an effort to “compensate the delay in fiscal consolidation” and comply with PM Modi’s budget announcement (surprising: as higher budget deficit would be expected to trigger the opposite reaction). The decision should help USD/INR to strengthen ground at Fibonacci 61.8% retracement 61.7664 on May-Dec’14 rise) as speculations for additional rate cut should reverse the mid-term INR appetite.
In Australia, the GDP growth accelerated to 0.5% q/q in Q4 (from 0.3% revised, vs. 0.6% exp.), the annual growth remained stable at 2.5% end of Q4 (vs. 2.7% prev). AUD/USD slid shortly to 0.7796 (21-dma) in Sydney alongside with sell-off in the stock markets (ASX 200 -0.54%). Short term trend remains positive with slowing momentum however. Resistance is seen solid at 0.7950 / 0.8000 (50-dma / Oct’14 – Feb’15 downtrend top).
The Canadian economy grew 0.3% m/m and 2.8% y/y in December, therefore curbing the annual GDP slowdown, 2.4% q/q annualized in Q4 (vs. 2.0% exp. & 2.8% last). The 3Q growth has been revised up to 3.2% from 2.8% y/y. Figures are perfectly in line with BoC’s 2.5% forecast. While the risk that the negative impact of sliding oil prices may have not been over yet, the expectations for a second consecutive rate action fade. The consensus is a status quo at 0.75% at today’s policy meeting.
USD/BRL advanced to fresh 10-year high of 2.9342 amid rumors that an agreement on Rousseff’s fiscal proposal to roll back tax breaks (estimated at 60 billion BRL) may not be reached. Markets are craving for stronger fiscal conditions in Brazil and Rousseff’s team is given little error margin. Should the political uncertainties keep FX volatilities high, the BCB will have no choice but to continue intervening via its FX swap program to curb renewed political tensions in BRL markets. The BCB is expected to increase its Selic rate by 50 basis points to 12.75% at today’s meeting. The policy tightening will likely cool-off selling pressures on the BRL, while renewed upside pressures should continue pushing the pair toward 3-psychological level pre-US jobs data (ADP due today; NFPs, unemployment and earnings due Friday).
EUR/USD consolidates weakness in tight range of 1.1164/86 in Asia, while GBP/USD retreated to 1.5340/72 band. The ECB and BoE verdicts are due tomorrow. While the sterling pound pares gains on pre-election talks, the EUR-sentiment remains negative with Greek turmoil still in headlines.
Else, the DNB Bank sold DKK 168.7 billion in February to defend EUR/DKK cap (beating 168.5 bn expected) after January’s 106.6 billion sales. The FX reserves rose to a record DKK 737.1 billion end of February (almost 40% of country’s GDP). The DNB’s struggle to weaken DKK is not over as speculator appetite to test the peg persist. For the time being, we do not see risk on the peg.
Traders also watch February Final services PMI across the Euro-zone and the UK and the US, UK February Official Changes, Euro-zone January Retail Sales m/m & y/y, US February 27th MBA Mortgage Applications, US February ADP employment Change and US Federal Beige Book.
| Today's Calendar | Estimates | Previous | Country / GMT |
|---|---|---|---|
| SW Feb Swedbank/Silf PMI Services | 57.4 | 57.9 | SEK / 07:30 |
| SP Feb Markit Spain Services PMI | 56.6 | 56.7 | EUR / 08:15 |
| SP Feb Markit Spain Composite PMI | 56.6 | 56.9 | EUR / 08:15 |
| IT Feb Markit/ADACI Italy Services PMI | 51.4 | 51.2 | EUR / 08:45 |
| IT Feb Markit/ADACI Italy Composite PMI | 51.4 | 51.2 | EUR / 08:45 |
| FR Feb F Markit France Services PMI | 53.4 | 53.4 | EUR / 08:50 |
| FR Feb F Markit France Composite PMI | 52.1 | 52.2 | EUR / 08:50 |
| GE Feb F Markit Germany Services PMI | 55.5 | 55.5 | EUR / 08:55 |
| GE Feb F Markit/BME Germany Composite PMI | 54.3 | 54.3 | EUR / 08:55 |
| EC Feb F Markit Eurozone Services PMI | 53.9 | 53.9 | EUR / 09:00 |
| EC Feb F Markit Eurozone Composite PMI | 53.5 | 53.5 | EUR / 09:00 |
| UK Feb Official Reserves Changes | - | -$80M | GBP / 09:30 |
| UK Feb Markit/CIPS UK Services PMI | 57.5 | 57.2 | GBP / 09:30 |
| UK Feb Markit/CIPS UK Composite PMI | - | 56.7 | GBP / 09:30 |
| EC Jan Retail Sales MoM | 0.20% | 0.30% | EUR / 10:00 |
| EC Jan Retail Sales YoY | 2.30% | 2.80% | EUR / 10:00 |
| US 2Feb 27th MBA Mortgage Applications | - | -3.50% | USD / 12:00 |
| US Feb ADP Employment Change | 220K | 213K | USD / 13:15 |
| US Feb F Markit US Composite PMI | - | 56.8 | USD / 14:45 |
| US Feb F Markit US Services PMI | 57 | 57 | USD / 14:45 |
| Bank of Canada Rate Decision | 0.75% | 0.75% | CAD / 15:00 |
| US Feb ISM Non-Manf. Composite | 56.5 | 56.7 | USD / 15:00 |
| US U.S. Federal Reserve Releases Beige Book | - | - | USD / 19:00 |
Currency Tech
EUR/USD
R 2: 1.1445
R 1: 1.1245
CURRENT: 1.1173
S 1: 1.1098
S 2: 1.1000
GBP/USD
R 2: 1.5620
R 1: 1.5552
CURRENT: 1.5362
S 1: 1.5317
S 2: 1.5197
USD/JPY
R 2: 121.85
R 1: 120.48
CURRENT: 119.68
S 1: 118.90
S 2: 118.18
USD/CHF
R 2: 0.9831
R 1: 0.9645
CURRENT: 0.9608
S 1: 0.9451
S 2: 0.9374